Aviation flat as automotive motors

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Sales of £5.2bn in the first half represent growth of 15%. This was driven by favourable currency movements, with underlying growth of 5%. Underlying profits before tax rose 14% to £393m, while free cash flow surged to £116m (2016: £40m).

The shares were broadly flat following the announcement

First half results

Currency supported headline sales growth of 11% at GKN Aerospace (trading profit £168m). However, while organic growth was slower at 1%, -3% commercial and +15% military, it remains in line with market trends. Margins in the division fell 0.6 percentage points to 9.3%, with new and replacement work worth c. $2.3bn won.

A broad geographic footprint and increased content per vehicle helped Driveline (trading profit £207m) deliver organic sales growth of 8%, significantly ahead of the global market. Trading margins were broadly flat at 7.8% and the division won c. £230m of annualised new and replacement business.

Powder Metallurgy (trading profit £68m) saw organic sales rise 4% in the half. However, trading margin deteriorated to 11.3% (2016: 12.6%) as a result of a higher raw materials surcharge and investment in powder capability in China.

Sales growth in 2017 is expected to be ahead of the market in both aerospace (up 1%) and automotive (up 2%).

Net debt at 30 June 2017 was £697m (Dec 2016: £704m), with a total pension deficit of £1,849m (Dec 2016: £2,033m). GKN has now closed its UK defined benefit pension scheme to further accrual, and expects to make a £250m payment to address the deficit and reduce future deficit recovery payments (currently £42m a year).

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